TSMC: you'll pay _____ or you can go to the other fab, oh right, you'll pay _____
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vendorSellingToBigBox: we would like _____ per unit of our product
bigBoxBuyer: that's nice. we'll pay 40%______ per unit. you'll sell extremelyLargeNumberOfUnits, and make it up in volume. oh, if you don't sell a minimum number, you have to buy all of the unsold items back from us. you'll also get the worst shelf space available compared to your competitors. i'm sorry you thought this was a negotiation.
Apple also has something TSMC desperately needs too: the ability to pay upfront and guaranteed volume.
Turning these lines on and off is basically impossible so guaranteed volume is a way to smooth out demand and is needed for planning.
These factories are tremendously expensive and getting cash upfront is basically a zero interest loan in a time of high interest rates.
If apple doesn't go to them, I think the only other option is Samsung? But I don't know that Samsung's fabs are open to third parties.
Samsung has produced parts for others for a Very Long Time, most famously NVIDIA (not "nVidia" since many decades) use(d) them.
Shorter-term that's true.
Apple is well known at times to think longer term on logistics, strategy. If push comes to shove, there are two additional options for Apple.
1) Political. Taiwan not being China depends on the support of the US. Apple is a economic security prize for the US, a strategic asset. Apple can get powerful politicians in the US to lean on Taiwan, which can dictate TSMC's behavior to an extent. This would prompt increased compromise from TSMC (3-4% hike, not 6%).
2) Apple starts investing into fabs and builds a TSMC competitor from the ground up, perhaps in alignment with ASML (Europe very much wants an improved semiconductor context) and a few US partners (build the fabs in the US and Europe for national security purposes). Apple is one of the few companies where you have to take this potential seriously, they can safely bankroll it entirely by themselves if necessary.
They most definitely are, my employer has sent trial tape outs to them recently.
It hurts Walmart as a business very little to stop selling Vendor X goods on their shelves when there are substitutes available. However, for Vendor X it's often the case that Vendor X cannot adjust their output as quickly as Walmart can take the product off shelves. That action, taking them off the shelves for even a short period of time while Walmart presses for renegotiating terms can result in layoffs, loss of revenue could result in lines of credit drying up. It's an existential threat to a company because they can't scale up and down at the speed Walmart demands.
If I recall correctly there's a record of this happening with Rubbermaid, and they responded to Walmart's demands for prices by cutting costs, cutting corners with quality, and ultimately sullied their brand name.
https://www.barnesandnoble.com/readouts/the-wal-mart-effect-...
Step 1: Company has a great product. Walmart begins stocking it nationwide, perhaps promoting it to increase their marketshare. That product's revenues explode, they expand, everything seems great.
Step 2 to N: Then Walmart threatens to pull from shelves unless they can meet the cost of $substituteGood. The company cuts costs to make it work. Rinse and repeat.
Step N+1: The product is no longer great.
This is exactly what has happened with Rubbermaid and with countless other consumer goods.
https://www.amazon.com/United-States-Wal-Mart-John-Dicker/dp...
Others will sell a white-label or generic brand to them. After all, it's just business.
How? I'm coming up blank. Is there a way to compare prices or quantity against other big box stores?
For awhile iPhones were just completely missing from some larger stores, but it seems Apple has the upper hand there now and they're back in business. And even now Apple holds a very right reign on the prices charged (Best Buy seems to have the most leverage here, as they often sell new MacBooks for a bit lower than the Apple Store). This is one of the reasons Apple started the stores; gives them leverage against the retail giants.
There are a number of brands you'll never see at Costco; they don't play the game.
Ill have to steal that one
It wouldn't be easy for Apple to just go to another fab. They'd have to find another vendor with the capacity and then they'd have to tweak things to match the new fab's design rules. Not trivial for something like M* chips. I suspect Intel would be happy to have Apple in their nascent foundry biz, but not sure they would have the capacity right away and also suspect the design would require a good amount of tweaking to get it in production in an Intel fab.
Apple could say that they will accept the 6% increase, but then lower their investment in new fabs 6%. I honestly don't know which number is bigger.
TSMC's position in that context is less strong than you'd imagine, especially since Apple has to be thinking that they want to diversify away from Taiwan and China to avoid "Russia risk" of having their supply shut off to zero suddenly when China does something crazy.
I agree with the diversity angle though. Tim Cook seemed really slow to recognize it, but the last few years apple has accelerated shifting manufacturing. India will now be joining China in producing their latest phones (14), which is a big first.
The way Jobs closes it is quite unusual however because in this case NewsCorp were late movers. Apple had already reached terms with all their competitors and could put on the table a take it or leave it offer which Murdoch couldn’t refuse.
I was part of the team in charge on negotiating the termination of an on-going contract involving a potential settlement in the low teens millions of dollars between two huge industrial companies once. Obviously it’s nothing as big as a deal between Apple and TSMC but still not an insignificant sum.
I was surprised by how straightforward the whole thing went. Basically we had prepared our arguments: we knew the minimum payment we could justify, the maximum we thought the contract allowed them to ask, what we were aiming for and how much we estimated going to court would cost us and them. They had done the same. There were a couple of back and forth where one party made an offer, the other countered with another one explaining why what was asked didn’t apply and why it should rather be like so and so. At some point, we said that’s our last offer we won’t move anymore. They decided to agree and that was it.
Executives value their own time over anything else, and as such - they don't find it valuable to haggle over small details in lieu of just getting the deal done.
For example, Apple has 150k+ employees.
A day wasted by the Company is 450 man-years
https://www.vanityfair.com/news/business/2014/04/apple-googl...
Most likely middle managers/directors emailing each other.
Pretty much like sovereign nations negotiating treaties.
Which is an apt metaphor, because neither Apple nor TSMC has the ability to force the other to do anything.
So, negotiations become a crawl to find a mutually-acceptable local optimum. Which ends up with both getting things they see as strategic priorities, while compromising on things they care about less.
Most of the dance is around figuring out what the other's strategic priorities actually are, and which concerns are secondary.
Or they have mutually-exclusove strategic priorities, in which case there is no deal.
TSMC is in a stronger position than most suppliers, because they have really strong demand for their product and don't need the prestige that an Apple deal offers.
There’s so seller like TSMC and no buyer like Apple.
I suspect if Apple really wanted to they would probably start to produce their products in two lines like Nvidia did, with cheaper phones produced on something like Samsungs 4nm and the higher end phones on TSMCS 3nm.
This has the added benefit of diversifying their supply chain (to a degree), giving TSMC less leverage over Apple and potentially reducing the production cost of the lower end phones.
Wouldn't be the first time Apple has used multiple vendors for their SOC. The 6s for example had SOCs made by both Samsung (14nm) and TMSC (16nm).
No, but they can use their massive war chest and expertise to ramp up a competitor or become one themselves over the next decade or two. With massive corporate ships like TSMC and Apple it takes a long time to change course but they work on longer timelines so a big negative shift over a long time scale is an alarming signal.
Remember when there was no way that Apple would ever be able to move away from Moto?
Remember when there was no way that Apple would ever be able to move away from IBM/Power?
Remember when there was no way that Apple would ever be able to move away from Intel?
If you think Apple can just buy their way into fab success, you don't understand the complexities of semiconductor manufacturing.
No one is saying they can "just" buy their way into fab success. However, I think they do have the cash and clout to make it happen on a decade long timeline, possibly in league with Intel/Samsung or the US Government, or all three, etc. Obviously that would be enormously costly and risky, but any move to eventually do so is a threat to TSMC, so even if they don't do it they have a negotiating position with TSMC right now because the relationship is enormously valuable.
Eh. Might know a thing or two, but I'm sure you know what you're talking about.
Have a great day!
Sure, but how are they going to produce iPads and iPhones before then? They can't have more than a year's worth of CPUs stockpiled.
From TSMC chips. Basically if TSMC insists on raising prices to levels above what Apple is prepared to pay they can threaten to move away from TSMC eventually. If TSMC refuses to budge then Apple will have to pay the higher prices in the short to medium term and then expend capital to not be beholden to TSMC over the long term. So then the question is does TSMC value the relationship over the long term or do they value the higher prices in the short to medium term? That could be Apple's negotiating position.
Apple could with some pain replace TSMC but TSMC can't really replace Apple. While Apple is a demanding partner they pay their bills on time and can and do front R&D money. Once Apple's deliveries are made TSMC now has a money printer on the new process node Apple paid for.
I wonder how they would react if they were offered 25% of Apple's 3nm capacity at the higher price.
This could be a good lesson for everybody.
Sounds like they're playing a game of chicken.
If TMSC rejects Apple, what is Apple going to do? Use Intel chips in iPhones?
> China throws billions for decades
PRC's first pseudo-serious semi push was 2014 big funds, so far they've spent about 50B, over 8 years. That's less than annual R&D of western semi sector. And basically for first 5 years it wasn't a very serious effort until Trump's Huawei sanctions. PRC semi poached about ~3000 semi engineers from TW, a few hundred top talent from TSMC, and that was enough to realize the recent 7nm breakthrough on DUV in the last couple years once PRC semi started to get serious. US companies wouldn't have any issue accessing western equipment and US could absolutely pressure TSMC / TW into further semi capitulation. So maybe dropping cash and add political sticks to brain drain TSMC. The secret isn't to recreate TSMC, but to paperclip all their people and get to to build US-SMC state side.
> lost chip war
That remains to be seen, so far there hasn't been any sector PRC couldn't successfully indigenize in relatively short order once central gov started turning the screws. It might not be leading edge, or even commercially competitive, but it will likely be enough. They could also destroy critical East Asian semi supply chain before US can reshore in next few years and be the only country with the most comprehensive indigenous semi supply chain even if on older nodes. Still lots of ways chip war can play out.
2) There is only one TSMC. If you could just buy one for 500bn the EU would have bought 3 already. Building your own TSMC from scratch takes a decade, if not longer.
I bet if you try the US and EU quietly tell you to stop, because Taiwan without a TSMC monopoly would be very scared.
This sounds like the same neoliberal fantasy that trapped Europe into an energy crisis.
They are not desktop or laptop chips though. Targeted at miners. If you are willing you could probably reverse engineer them and do some fun stuff. But they are definitely not general purpose.
Apple is probably weaker because it’s likely someone else can fund the newest node for TSMC, just might take more work.
They announced they would do that in March 2021 (https://www.techpowerup.com/280085/intel-to-enter-third-part...) and have customers:
- QualComm and Amazon AWS: https://www.theverge.com/2021/7/26/22595002/intel-qualcomm-c...
- MediaTek (https://www.tomshardware.com/news/intels-foundry-services-la...)
Intel page: https://www.intel.com/content/www/us/en/foundry/intel-foundr...
They both want this to get worked out.
Taiwan:?
Apple: We also have the technology.
Taiwan: ??
Apple: Did we ever tell you about our iSoldier project?
["parody. not to be taken seriously"]
"The United States spends more on national defense than China, India, Russia, United Kingdom, Saudi Arabia, Germany, France, Japan, and South Korea — combined."
!?
And $200B is inside the consensus estimate of $200B to $300B. Wow.
I mean, the US has 20 aircraft carriers and the rest of the world has 28. The proof is in the pudding.
I mean it isn't just a "we'll lower this" I bet there's lots of juicy confidential future roadmap stuff, things like "Ok we'll help you invest in this _____ tech and machinery but you have to knock off half a cent" or who knows what!